Top Reddit stocks to watch
Below is a list of the top 10 most mentioned US stocks on the WallStreetBets thread on Reddit over the last 24 hours on July 6, 2022, according to data from Quiver Quantitative. Exchange-Traded Funds (ETFs) have been excluded.
- Advanced Micro Devices
- AMC Entertainment
- Faraday Future Intelligent Electric
- Jacobs Engineering Group
Tesla shares are down 1% this morning. The electric vehicle maker revealed over the weekend that it delivered far fewer cars than expected in the second quarter as supply chain headwinds and Covid-19 disruption in China hurt output and made it difficult to ramp-up production at its new factories. However, it said production reached a new monthly record in June, and this was supported by news that it sold around 78,000 cars made in Shanghai during June, up from just 32,165 in May. That was also ahead of the 71,000 that Tesla had targeted. However, output in Shanghai could suffer another temporary setback this month and next as it temporarily shuts down to undertake a major upgrade that will significantly improve capacity at Giga Shanghai.
Big Tech stocks remain in play as markets brace for what could be a tough set of quarterly results when earnings season kicks off later this month. Markets are preparing for most members to report a drop in earnings as they come up against tough comparatives and growth continues to slow, with only Microsoft and Alphabet expected to keep growing their bottom-lines.
Meanwhile, news broke this morning that Microsoft’s proposed $69 billion acquisition of Activision Blizzard will face a regulatory probe in the UK. Microsoft shares are down 0.2% before the bell while Activision Blizzard is down 1.4%.
Apple shares are down 0.3% in early trade. The company is expected to report tepid topline growth this quarter whilst earnings are set to suffer a mild decline of just over 1%. However, some analysts believe markets have underestimated iPhone sales, which could see the company surprise this quarter. Loop Capital Markets said Wall Street ‘continues to materially under-model’ average selling prices of iPhones and that it could beat expectations in the second half. Meanwhile, JPMorgan said lead times for the iPhone remain under a week in most markets, suggesting it has got a much better handle over supply chain issues that have cost the company billions this year.
Notably, news broke this morning that European lawmakers have approved two new major overhauls of regulation for Big Tech which aim to crackdown on anti-competitive behaviour and on improving content moderation. Non-compliance could lead to a fine equal to 20% of annual global turnover and could set a benchmark for other countries looking to bring large US tech companies under control.
With that in mind, Amazon shares are down 0.4% after regulators in the UK launched an investigation over whether the company is hurting competition by prioritising its own sellers over that of third parties on its website. Meanwhile, Amazon has also secured options to take a 2% stake in US food delivery giant Grubhub, which is now part of Just Eat Takeaway. Amazon plans to offer a one-year membership to Grubhub to its Prime members, which should also help bolster traffic to the platform and gain lost ground from the likes of Uber and DoorDash, which are both under pressure today thanks to the news. The deal could be renewed on an annual basis if successful, and that could lead to Amazon taking a stake of up to 15% in Grubhub.
Chipmakers remain volatile. While the long-term fundamentals look strong for semiconductor stocks, there are growing concerns that demand for tech is about to drop off just as supply constraints begin to ease in the second half of 2022. A warning over demand for the likes of smartphones and computers from Micron could prove to a warning from the canary in the coal mine, although demand for more profitable applications like data centres and industrial use looks far more resilient. This morning, Micron is down 0.5%, AMD shares are down 0.4%, and NVIDIA is is trading 0.3% lower.
Roblox has broken back into the top 10 most discussed stocks. The stock jumped over 14% higher yesterday and is down 0.2% before markets open. That has been driven by news that the co-founder of trading and markets research firm Market Rebellion, Jon Najarian, bought shares in the company following the heavy selloff this year that has seen it slide 60% in 2022. ‘Obviously the stock has been slaughtered. It’s down so dramatically that people… are saying, I’m going to take a shot at this one,’ he said in an interview with CNBC. ‘Some of these stocks have been battered so severely that it’s hard to imagine a much worse scenario’, he added. That follows on from news that Wedbush Securities and other hedge funds and institutional investors have built-up their stakes in Roblox this year.
Faraday Future Intelligent Electric is a new entry after rallying over 48% higher yesterday to hit its highest level since March. The stock is down 1.5% early this morning. The electric vehicle maker soared despite no news out on the stock, but it appears to be catching the eye of retail traders as it continues work on starting production of its FF 91 car in the third quarter of 2022. However, the company has burnt through over $3 billion since inception and expects more losses for the foreseeable future, which will make investors nervous considering it only had $276 million in cash at the end of March. That has given some the confidence to bet against the company, with 27.7% of its public float in the hands of short sellers, according to figures from Bloomberg. That has undoubtedly attracted some traders looking for the next potential short-squeeze, which could see Faraday Future Intelligent Electric become the latest meme stock to grab the market’s attention.
Other meme stock favourites also remain in play, with video game retailer GameStop is down 1% before the bell and AMC Entertainment is down 0.6%, with the latter announcing this week that it will launch discounted tickets at just $5 plus tax on Tuesdays until the end of October.
Other movers to watch
Exxon Mobil is up 0.1% in early trade after analysts upgraded their expectations ahead of this earnings season after the oil giant said last week that it could almost double earnings in the first quarter. Credit Suisse said the update suggested the company could enjoy ‘one of the strongest quarters’ in its history. As a result, Wall Street now believes it could deliver quarterly profit of around $4.02 per share, a steep upgrade from the $2.99 that was previously pencilled-in. While welcome news, it is also adding pressure from the US government as it looks to encourage the industry to reinvest their bumper profits in more capacity to help alleviate the cost-of-living crisis hitting the public.
Walmart shares are trading slightly lower this morning after reports suggested the company plans to start charging some of its suppliers from next month for transporting goods to its warehouses and stores as it grapples with rising transportation costs. The Wall Street Journal, citing an internal memo, said Walmart was looking to ‘share cost accountability’ with its suppliers.
Spirit Airlines is trading marginally higher before the bell after being awarded 16 peak-hour runway slots at Newark airport in New Jersey. The slots have been reassigned from Southwest Airlines in an effort to improve competition. Notably, JetBlue – which is currently battling Frontier Group to buy Spirit – also tried to secure the 16 slots.
Unilever shares are up 0.4% before markets open after Ben & Jerry’s sued its parent company, alleging the decision to sell the brand in Israel was made without consultation of the ice cream company’s independent board. A judge denied its effort to secure a temporary restraining order, but the court has asked Unilever for its argument as to why an injunction should not be issued. The deal was struck in order to get the brand sold across the country after Ben & Jerry’s stopped selling it in occupied territories last year.
Yum Brands is down 0.1% after announcing it is in talks about selling off its KFC restaurants and franchise rights in Russia to a local buyer. It has around 1,000 outlets in the country, virtually all of which are run by independent operators.
Snap shares are down 0.8% this morning at $14.26 after Barclays slashed its target price by more than half to just $20 from $42 and warned that a ‘perfect storm is here’ as digital advertising growth comes under pressure this year amid a weak economic outlook and intensifying competition with the likes of TikTok. Snap shares have plunged over 70% in 2022.
Corning has been upgraded to Strong Buy from Buy by CFRA and had its target price reiterated at $47. The tech and materials company is up 0.4% this morning at $31.79.
Merck has been upgraded to Outperform from Hold by Daiwa Securities and had its target price raised to $102 from $89. The pharma giant is trading flat today at $92.64.
Rocket Companies has been upgraded to Overweight from Equalweight by Wells Fargo. The stock is up 4.6% before the bell at $8.42.
Sabre has been upgraded to Buy from Underperform by Bof Securities and had its target price reiterated at $10. The travel tech company is up 6.6% in early trade at $6.80.
Continental Resources has been downgraded to Sector Perform from Outperform by RBC and had its price target bumped-up to $80 from $75. The oil and gas stock is down 1.2% before the bell at $63.35.
Coinbase has been downgraded to Neutral from Overweight by Atlantic Equities and had its price target slashed to $54 from $95. The cryptocurrency trading platform is down 3.2% before the bell at $53.65.
EOG Resources has been downgraded to Sector Perform from Outperform by RBC and had its price target reiterated at $150. The energy stock is down 0.6% before markets open today at $104.15.
HCA Healthcare has been downgraded to Underperform from Market Perform by BMO Capital and had its price target slashed to $160 from $233. The healthcare stock is down 2.5% this morning at $168.23.
Universal Health Services has been downgraded to Underperform from Market Perform by BMO Capital and had its price target cut to $90 from $133. The stock is down 1.2% before the bell at $103.67.
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The Reddit frenzy
Retail investors realised their potential power in early January 2021 when a loosely coordinated strategy was formed on Reddit’s WallStreetBets chatroom to buy shares and out-of-money call options on stocks that were being targeted by short-sellers to push the price higher. The idea was to create a short-squeeze.
What is a short-squeeze?
A short-squeeze does what it says on the tin – it tries to squeeze short-sellers out of their positions. Short-sellers, mostly big institutional investors and hedge funds, bet that the price of a stock will fall but, as retail investors pile in and push the share price higher, they are forced to start buying the stock to try to limit their losses. The buying by the big players only fuels the share price higher.
David vs Goliath
The fact many of the stocks being targeted are fundamentally flawed or failing adds increased risk into an already volatile picture. GameStop is an out-of-favour retailer that sells physical video games during a time when games are mostly being bought online, while others like Blackberry are also laggards from the past.
With this in mind, it is unsurprising they were in the crosshairs of short-sellers that look for failing companies to bet against.
But why are retail investors banding together to buy shares in flawed companies? This disconnect is partly explained by a growing resentment among the smaller players in the market, which disagree with the idea of large institutions profiting from a company’s failure through short-selling practices, creating what has been described as a ‘David vs Goliath’ battle.
It is important to note that not all the most actively-discussed stocks on Reddit are struggling or being targeted by short-sellers. Many of the most mentioned stocks, like Apple, are simply popular among the community.
Reddit stocks and volatility
The stark movements in stocks like GameStop has demonstrated the power and influence that social media-driven investors and traders can have on the market, having injected severe volatility into several stocks. Volatility presents opportunities for traders, and it doesn’t get more volatile than Reddit stocks right now.
For example, we saw GameStop - the first heavily-shorted stock to be targeted by social media-driven investors - go from below $19 at the start of 2021 to a new record high of over $347 by January 27, and the share price has remained highly volatile ever since.
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